ECON101 Chapter Notes - Chapter 14: Monopolistic Competition, Perfect Competition, Marginal Cost

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pucecoyote5

17 Jun 2017

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Maria Viola

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Monopolistic competition is a market structure in which: a large number of firms compete, each firm produces a differentiated product, firms compete on product quality, price and marketing, firms are free to enter and exit the industry. Monopolistic competition is similar to perfect competition because there is a presence of a large number of firms: three implications. Each firm supplies a small part of the total industry output: limited power to influence the price of its product. Each firm"s price can deviate from the average price of other firms by only a relatively small amount. A firm in monopolistic competition must be sensitive to the average market price of the product, but the firm does not pay attention to any one individual competitor. All firms are relatively small, so no one firm can dictate market conditions, so no one firm"s actions directly affect the actions of other firms.

Related Questions

25. One difference between perfect competition and monopolistic competition is A) firms in a perfectly competitive market produce similar but slightly different products. B) in perfect competition, the product produced has no close substitutes. C) monopolistic competition has barriers to entry, whereas perfect competition has none. D) a small number of firms compete in a monopolistically competitive market and a large number of firms compete in a perfectly competitive market. E) firms in monopolistic competition have some degree of market power.

1. The assumptions of perfect competition imply that:

a) Individuals in the market accept the market price as given.

b) Individuals can influence the market price.

c) The price will be fair.

d) The price will be high.

2. Monopolistic competition describes an industry characterized by a ____ number of firms producing____ products with ____ for firms:

a) Small; identical; barriers to entry.

b) Small; similar; relatively easy entry.

c) Large; similar; relatively easy entry.

d) Large; identical; relatively easy entry.

purplehyena626

1. A monopoly market structure is characterized by

a. large number of firms, standardized products, easy entry and exit.

b. large number of firms, differentiated products, easy entry and exit.

C. small number of firms, standardized or differentiated products, difficult entry.

d. one firm, a unique product without close substitutes, and impossible entry.

e. one firm, differentiated product, impossible entry.

2. Which of the following is not a characteristic of monopolistic competition?

a. Differentiated products

b. A downward-sloping demand curve for individual firms

c. Firms that are price makers

d. Impeded entry into the industry

e. A large number of firms

3. One factor that distinguishes oligopoly from other market structures is

a. the ease of entry into the market.

b. the interdependence of firms.

c. the slope of the demand curve.

d. the degree of product differentiation.

e. the amount of advertising expenditures.

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ECON101 Chapter Notes - Chapter 14: Monopolistic Competition, Perfect Competition, Marginal Cost

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